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Cousins Properties Incorporated (CUZ - Analyst Report) – a real estate investment trust (REIT) – reported second-quarter 2013 funds from operations (FFO) per share of 12 cents, beating the Zacks Consensus Estimate by a penny. However, it was below the year-ago figure of 13 cents.

The year-over-year decrease was due to reduction in net income, owing to preferred stock redemption charges incurred in the said quarter. Notably, Cousins Properties redeemed all of its outstanding shares of Series A Cumulative Redeemable Preferred stocks for approximately $75 million.

However, total revenue for the quarter jumped 36% to $44.2 million from $32.5 million in the year-ago period. Furthermore, total revenue easily exceeded the Zacks Consensus Estimate of $39 million.

Behind the Headlines

Total same property revenue increased 3.6% in second-quarter 2013, compared with the prior-year quarter (office up 4.2%, and retail up 0.6%), while total same property operating expense upped 1.9% (office up 2.5%, and retail down 2.7%). As a result, total same property net operating income (NOI) upped 4.7% on a year-over-year basis (office up 5.5% and retail up 1.8%).

In the reported quarter, Cousins Properties executed strong leasing activities and leased 367,000 square feet of office and 46,000 square feet of retail space. At the quarter-end, the company’s same property office and retail portfolios were 90% leased, up 300 basis points (bps) from 87% in year-earlier quarter.

Portfolio Restructuring Activity

In the reported quarter, Cousins Properties acquired a Texas-based Class-A office tower – 816 Congress – for $102.4 million.

Moreover, the company divested all remaining land at its Jefferson Mill project for $2.9 million. In addition, Cousins Properties inked a deal to sell two of its retail properties, namely Tiffany Springs MarketCenter and The Avenue Murfreesboro.

Additionally, Cousins Properties started construction at a Texas-based Class-A office tower – Colorado Tower – for a projected total cost of $126.1 million.

Liquidity

At the second quarter-end, Cousins Properties had cash and cash equivalents of $4.9 million, down from $6.0 million as of Mar 31, 2013.

During the quarter, the company completed an equity offering of 16.5 million common shares at $10.45 per share and generated net proceeds of $165.1 million.

Moreover, during the quarter, the company refinanced the loan on an Atlanta-based medical office property – Emory University Hospital Midtown – that consequently lowered its interest rate to 3.5% from 5.9%.

Our Viewpoint

Although a one-time expense dip the quarterly FFO of Cousins Properties, the leasing and occupancy gains enabled it to come up with overall better-than expected results. In addition, the successful execution of the company’s portfolio repositioning activity also added to the bliss. The acquisition of Texas-based property – 816 Congress – is noteworthy in this respect. Going forward, we expect this to provide upside potential and boost its top-line growth.

Cousins Properties currently carries a Zacks Rank #4 (Sell). REITs that are performing better include Diamondrock Hospitality Co. (DRH - Snapshot Report), Franklin Street Properties Corp. (FSP - Snapshot Report) and WinthropRealty Trust (FUR - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation, amortization and other non-cash expenses to net income.

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